Valmont Industries, Inc. Q2 FY2026 earnings call

Overall Strategic Execution

• Q2 2026 results demonstrate strong execution of Valmont's strategy, with sales growth, expanding margins, and higher EPS growth
• Management prioritizes investing in highest-return opportunities (notably utility capacity expansion) while maintaining financial flexibility for long-term shareholder value creation
• Disciplined cost management and operational improvements are driving margin expansion even in challenged end markets

Infrastructure Market Conditions

• North America Utility: Supported by a multi-year investment cycle driven by grid modernization, growing power demand, data center development, and electrification; demand remains robust, and capacity expansion is ongoing to meet market needs
• North America Coatings: Benefiting from the same broad infrastructure investment trends supporting the utility business
• North America Telecom: Capital spending has moderated post-5G peak, but cost discipline and operational improvements have kept the segment highly profitable despite lower sales; long-term demand is supported by growing data consumption and future network expansion
• International Infrastructure: Management is executing strategic initiatives to improve performance, with early encouraging progress expected to deliver results through the remainder of 2026

Agriculture Market Conditions

• Global agriculture market conditions remain challenged: tight farm economics constrain grower capital spending in North America, and Brazilian government irrigation financing is lower year-over-year
• Middle East agriculture projects are delayed due to ongoing regional conflict
• Management is focusing on higher-value growth areas: aftermarket parts sales grew ~6% YoY and technology services grew 7% YoY in Q2 2026 despite soft equipment demand, improving business resilience

Capital Allocation

• Generated $148 million in operating cash flow in Q2; ended the quarter with $139 million in cash and net debt leverage near 1x
• Invested $36 million in capital expenditures, primarily for utility capacity expansion; repaid $60 million in remaining revolving credit facility balance
• Returned $75 million to shareholders: $60 million in share repurchases and $15 million in dividends; $451 million remains available under the current share repurchase authorization
• Capital expenditure guidance for full-year 2026 remains unchanged at $170-$200 million, with spending weighted to the second half for capacity expansion

Consolidated: Net sales for Q2 2026 were $1.12 billion, a 6.5% year-over-year (YoY) increase. Operating income hit $166.1 million, with an operating margin of 14.8% (up 130 basis points YoY). Diluted earnings per share was $6.14, a 25.8% YoY increase.

Infrastructure Segment: Q2 2026 sales were $879 million, growing 14.8% YoY, contributing 78.5% of total consolidated net sales. Operating income was $154 million, with an operating margin of 17.6% (up 130 basis points YoY). Sub-segment performance:

• North America Utility: +33.9% YoY sales growth, driven by higher pricing and volume growth from strong market demand
• North America Lighting and Transportation: -2.4% YoY sales growth due to lower volumes
• North America Coatings: +16.6% YoY sales growth, supported by strong infrastructure and data center demand
• North America Telecom: -26.1% YoY sales growth, reflecting reduced carrier capital spending post-5G deployment peak
• International Infrastructure: +7.4% YoY sales growth, driven by favorable foreign exchange and slight volume increases

Agriculture Segment: Q2 2026 sales were $244 million, declining 15.8% YoY, contributing 21.8% of total consolidated net sales. Operating margin improved 90 basis points YoY to 16.5%, driven by disciplined cost and risk management. Sub-segment performance:

• North America Agriculture: -2.3% YoY sales growth, with reduced volumes partially offset by favorable pricing
• International Agriculture: -28.9% YoY sales decline, driven almost entirely by lower project volumes in the Middle East; sales were flat across all other international markets

Management raised full-year 2026 guidance reflecting stronger-than-expected performance in North America Utility and Coatings:

• Full-year consolidated net sales guidance revised upward to $4.3 billion to $4.45 billion, representing ~6.7% YoY growth at the midpoint
• Infrastructure full-year sales guidance revised upward to $3.4 billion to $3.5 billion; pricing contribution will moderate YoY in the second half as prior contractual pricing adjustments are fully annualized, but pricing remains favorable and volume growth is expected to stay healthy
• Agriculture full-year sales and earnings guidance is maintained, reflecting the expected normal seasonal pattern of lower sales in the second half of 2026
• Diluted earnings per share guidance revised upward to $22.25 to $23.50, representing nearly 20% YoY growth at the midpoint
• Infrastructure operating margins are expected to remain consistent with first half 2026 levels in the second half, despite rising raw material costs; agriculture operating margins are expected to moderate to the low teens in the second half due to normal seasonal mix shifts
• Full-year 2026 capital expenditure guidance is maintained at $170 million to $200 million
• Management reaffirmed its long-term 2029 financial targets: 7% annual sales growth, operating margin expansion to 17%, double-digit annual EPS growth, and 21% return on invested capital, and remains confident in achieving these targets

• Geopolitical risk: Ongoing conflict in the Middle East has caused customer project delays, creating near-term revenue headwinds and increased operating costs for agriculture segment projects in the region • Input cost inflation: Accelerated increases in raw material costs (including 27-30% year-to-date steel price increases and 45% year-to-date diesel price increases) created short-term margin pressure in Q2 2026, with timing lags between cost increases and pricing adjustments • Telecom market uncertainty: North America telecom demand has lower visibility due to shifting carrier capital allocation priorities and leadership changes at major carrier customers, resulting in larger-than-expected Q2 sales declines • Agriculture market headwinds: Persistently strained grower economics in North America and Brazil, combined with lower government irrigation financing in Brazil, continue to constrain equipment demand • Capacity constraints: Utility segment growth is currently limited by available system capacity across engineering and manufacturing, rather than demand • General macro and regulatory uncertainty: Actual results may differ materially from forward-looking statements due to factors including changes in government policy, tariffs, competitive dynamics, and market conditions beyond Valmont's control

Q: Telecom had a soft Q2 2026. Did management expect this softness at the start of 2026, and what is the outlook for the segment for the full year? / A: Management stated that telecom is a low-visibility, quick-turn business without significant backlog, so the Q2 softness from shifted carrier spending was not expected. Leadership changes at major carriers drove the shift in capital allocation. Full-year 2026 telecom sales are now expected to be down mid-teens percent YoY. Management remains confident long-term demand will recover as carriers continue spectrum and network buildout, and Valmont will continue supporting customers through this period.

Q: Outside of Middle East disruptions, is the agriculture business showing signs of stabilization or a market bottom? Are there any positive green shoots? / A: Management noted there are no clear green shoots yet, but the agriculture business has stabilized outside of the Middle East, with flat sales across other international markets and low-single-digit sales declines in North America. Grower economics remain strained due to low grain prices, high input costs, and tighter financing. The company is seeing steady single-digit growth in high-margin aftermarket and technology businesses, with growing adoption of its technology solutions that support long-term profitability.

Q: Q2 infrastructure revenue grew sharply sequentially from Q1. How much of this growth was price versus volume, and why did incremental margins compress sequentially? / A: The sequential revenue growth was driven mostly by price increases, with a smaller contribution from volume growth. Sequential margin compression came from recently accelerating material cost inflation, which impacted Q2 results and is expected to affect Q3 as well. On a year-over-year basis, infrastructure growth and incremental margins remain very strong.

Q: Will second half 2026 infrastructure margins improve compared to the first half, even with the telecom headwind? What about seasonal utility growth in the second half? / A: Management expects second half infrastructure margins to remain consistent with first half 2026 levels. While telecom is a high-margin business and lower sales create modest margin pressure, cost actions have kept telecom profitable even at lower volumes. The primary headwind is accelerated short-term raw material cost inflation, which is being offset by pricing actions, with no impact to long-term margin trajectory. Utility sales are still expected to grow sequentially in the second half, constrained by current capacity rather than weak demand. Demand across all utility sub-segments remains robust.